Unique Aspects of the Gaming Industry
As per AASB 15, the first principle is that an organisation needs to recognise revenue for representing the transfer of products or services to the customers in a considerable amount to the concerned organisation. Moreover, all the relevant terms of the contracts and relevant facts are to be considered at the time of applying this standard. Finally, the organisation could apply the standard for individual assets or portfolio of assets by using assumptions and projections that depict the composition and size of the portfolio (Aasb.gov.au 2018).
After evaluating the provided case study of Chester Games Corporation (CGC), it has been identified that the organisation measures and recognises revenue at the fair considerable value to the degree that it is probable and the organisation would enjoy the economic benefits by gauging revenue reliably. It recognises revenue generated from consumables immediately over the average player life. However, the organisation has not gathered adequate data that could segregate between revenue generated from consumable goods and durable goods. The revenues are recognised based on cash receipts. This complies with “Paragraph 61 of AASB 15”. According to this paragraph, revenue is recognised at an amount, which signifies the price that any customer would have incurred for the promised products or services, if cash is paid for the same when transferred to the customer, which is cash selling price (Holland 2016). The only exception is that CGC deferred a nominal revenue amount related to sale of virtual durable goods in its newer game in the financial year 2017.
Lease is considered to be a significant activity for various entities, as it is a procedure of obtaining access to assets, finance along with minimising the exposure to the asset ownership risks. When any contract is made, it is necessary for an organisation to analyse whether any lease is inherent in the contract, as laid out in “Paragraph 9 of AASB 16” (Aasb.gov.au 2018). A lease is identified only when the following criteria are fulfilled:
- Right to control the use of identified asset for any period in lieu of consideration
- The customers have full ownership to direct the use of the identified asset along with seeking economic benefits from the same
According to the provided information, CGC has entered into an agreement with an information technology organisation for using a specified server for two years. This could not be identified as a lease contract due to the following three reasons:
- The asset employed in the contract is not mentioned; instead, only a particular server is mentioned and the information technology company is obliged to provide network services only.
- CGC does not have any control over the use of that particular asset
- Along with this, CGC does not obtain substantially all the economic benefits related to the equipment. This is because the information technology company has the right to reconfigure or replace the servers for providing the quality of network services mentioned in the contract (Joubert, Garvie and Parle 2017).
References:
Aasb.gov.au., 2018. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB15_12-14.pdf [Accessed 5 Oct. 2018].
Aasb.gov.au., 2018. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB16_02-16.pdf [Accessed 5 Oct. 2018].
Holland, D., 2016. Simplifying income recognition for not-for-profit entities. Governance Directions, 68(11), p.666.
Joubert, M., Garvie, L. and Parle, G., 2017. Implications of the New Accounting Standard for Leases AASB 16 (IFRS 16) with the Inclusion of Operating Leases in the Balance Sheet. Journal of New Business Ideas & Trends, 15(2), pp.12-19.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
